SERRA-ESTEVA V COLEMANS PRINTING [1997] IRCA 88

The applicant claims that the termination of his employment was unlawful, and seeks compensation. BACKGROUND FACTS The applicant commenced employment with the respondent on 24 July 1995 as the Accountant/Financial Controller. On 23 December 1995, he went overseas, by virtue of a prior arrangement with his employer. He did not return to Darwin until Saturday, 27 January 1996. During the time that he was overseas, his predecessor in his position, a Mr. Smith, took over his duties. Mr. Smith found some accounting entries which he could not explain or understand, which appeared to him to be irregular. As a result, he reported those matters to Mr. Gary Coleman, the General Manager of the respondent. Mr. Coleman commissioned Ernst and Young, a firm of accountants, to do an audit on the financial records in question. On 22 January 1996, Ernst and Young reported to the respondent in respect of the particular records they had examined. Their report became Exhibit 14 in the proceedings. The gravamen of the report is to be found in the following extract: "Our limited review of the accounts receivable ledger for Image Offset Pty Ltd for the months of November and December 1995 revealed that the procedures used by the accountant to record transactions noted above are not acceptable accounting methods, however, our opinion is reserved subject to a full audit. With the limitations in the scope of the review and the time frame available it is difficult to ascertain the full extent of the transactions or to understand the reasoning behind the transactions. We have not had the opportunity to discuss this with the company accountant who processed the data. To fully document the extent and implications of irregular entries would require a more complete audit of the system." Prior to the receipt of that report, but after Mr. Smith had spoken to him, Mr. Coleman sent a letter dated 18 January 1996 to the applicant at his home address. That letter read as follows: "18 January, 1996 PERSONAL & CONFIDENTIAL Mr Felipe Serra-Esteva 6 Moreton Place KARAMA NT 0812 Dear Felipe Certain accounting anomalies have been drawn to my attention since my return to the office on Tuesday, 16 January 1996, indicating unacceptable accounting procedures. The information provided to me at this point is of such concern it is considered imperative to engage an auditor to obtain a report. Dependant upon the outcome of this report we may be left with no alternative but to exercise the termination provision within the probationary clause of your contract of employment. Yours sincerely GARY COLEMAN General Manager" On 23 January 1996, after the receipt of the report from Ernst & Young, Mr. Coleman sent a letter to the applicant terminating his employment. That letter read as follows: "23 January 1996 PRIVATE AND CONFIDENTIAL Mr Felipe Serra-Esteva 6 Moreton Place Karama NT 0812 Dear Felipe, Further to our letter dated Thursday 18th January 1996 we now advise that the auditor's report is to hand and confirm irregularities which are unacceptable, and for which in your capacity with the company we hold you responsible. In the circumstance we exercise our prerogative under the probationary clause of your employment contract to terminate your employment in accordance with that clause with effect Tuesday 23rd January 1996. Upon your return to Australia an opportunity is extended to explain the matters at issue to Colemans Printing Pty Ltd and the auditor. In the event that a satisfactory explanation is not given to the irregularities your termination of employment will be confirmed as effective on 23rd January 1996. Yours sincerely, Gary Coleman MANAGING DIRECTOR" The Court has no doubt whatsoever, despite Mr. Coleman's evasions when he gave his evidence on this question, that he knew when he sent that letter dated 23 January 1996, and when he sent the letter dated 18 January 1996, that the applicant was overseas. This follows inevitably from the presence in the letter dated 23 January 1996 of the phrase "upon your return to Australia". Mr. Coleman was not an impressive witness. The Court gained the impression from the manner of his testimony that he was tailoring his evidence in an attempt to bolster the respondent's case. WAS THE APPLICANT SERVING A PERIOD OF PROBATION WHICH WAS REASONABLE AND DETERMINED IN ADVANCE? Regulation 30B (1) reads as follows: [reg 30B] Certain employees excluded from requirements for termination of employment 30B (1) [Exclusion from operation] Subject to subregulation (2), for the purposes of section 170CC of the Act, the following employees ar excluded from the operation of Subdivisions B, C, D and E of Division 3 of part VIA of the Act: (a) ................ (aa) ................ (b) ................ (c) an employee serving a period of probation or a qualifying period of employment, if the duration of the period or the maximum duration of the period, as the case requires: (i) is determined in advance; and (ii) is reasonable, having regard to the nature and circumstances of the employment; (d) ........... The first question to be determined, therefore, is whether the period of probation was determined in advance. The applicant was employed after two meetings with the respondent's managers. The first meeting was on 6 June 1995, and the second meeting was in mid-June 1995. The applicant said that at neither of those meetings was the question of a probation period mentioned. He said that at the meeting on 6 June 1995 he was told by Mr. Coleman that the terms and conditions of his employment would be as outlined in the advertisement for the position, Exhibit 1. Those present at the first meeting were Mr. Coleman, Mr. Smith, and the applicant. Mr. Coleman, contrary to the evidence of the applicant, gave evidence that the applicant was given "a total brief of the company structure" including the requirement of the job, his duties, his salary and a probation period. Mr. Coleman said that various other things were discussed but it was not possible to go into more detail. Mr. Smith was not called by the respondent to give evidence of that meeting. He was available, and the failure to call him was unexplained. In my opinion, Mr. Smith was not called because his evidence would not assist the respondent's case. See Jones -v- Dunkel (1959) 101 CLR 298. The persons present at the second meeting in mid-June were the applicant, Mr. Coleman, Mrs. D Coleman, (Mr. Coleman's wife) and Mrs. Rosemary Campbell, an accountant from Ernst and Young. Once again, the applicant denied that a probationary period was discussed at that meeting. Mr. Coleman gave evidence that, not only was a probationary period discussed, but that the applicant was informed at that meeting that it would be of six months duration. Mrs. Campbell was called by the respondent. Despite the Court's warning to Mr. Chizmaysya, the Industrial Advocate who appeared for the respondent, not to use leading questions, Mr. Chizmaysya introduced the issue of whether or not probation had been discussed at that second meeting by asking Mrs. Campbell the question "was probation discussed?". As a result of such an obviously leading question on an important issue, the Court stood Mrs. Campbell down from the witness box, and heard other evidence for a period of about forty minutes. In view of the fact that Mr. Chizmaysya, in effect, suggested to Mrs. Campbell that a probation period had been discussed at that meeting in June, the weight of her testimony in respect of that matter is, in the opinion of the Court, significantly reduced. In any event, Mrs. Campbell did not say that a particular period had been discussed. All she said was that Mr. Coleman "raised the issue that he would always bring a probationary period for any new employee" (sic). Mrs. Coleman, although present at that second meeting in mid June, was not called to give evidence. This was unexplained. In the opinion of the Court, this was because her evidence would not have assisted the respondent's case. See Jones -v- Dunkel (supra). The applicant gave evidence that he would not have accepted a position as a probationary employee as it was important for him to have secure employment. He said that he already had a secure job, earning about the same, and that it would not have been in his interests, particularly in view of his family responsibilities, to change employment to a job on probation. I accept the applicant's evidence. In the opinion of the Court, the question of probation was not raised by the respondent, at either of the pre-employment interviews. In so finding, I do not ignore the letter dated 4 September 1995 (Exhibit 4) sent to the applicant by Mr. Coleman, in which a six month probationary period was set out. In my opinion, that was an attempt to impose, ex post facto, a period of probation. The next question to be determined is whether the duration of the period of probation (assuming I am wrong on the question of whether there was a period of probation at all) was reasonable. The applicant, although he was not in a management position, was experienced in his job, and came to the respondent's employment with references from all his previous employers except the employer whose employment he left to join the respondent. Furthermore, the applicant gave evidence that, in previous similar jobs, and in his new job, he had a three month probation period. He said that was the norm in the industry. That evidence was not contradicted. I accept what he says. In my opinion, in the circumstances, six months was not a period of reasonable duration, having regard to the nature and circumstances of the employment. WAS THERE A VALID REASON FOR TERMINATION OF THE APPLICANT'S EMPLOYMENT? Various matters were put to the applicant concerning the bookkeeping entries referred to above. In one of them he had, by mistake, entered the sum of $15,829.00 instead of the sum of $1,582.00. He said that $15,829 was obviously a "keying" error by him. I regard that as a trivial mistake, one that anybody, no matter how skilled and diligent, could make. In respect of all of the other matters raised with him, the applicant explained that the entries in question were working entries, made in an attempt to reconcile invoices and expenditure in respect of which the documentation was not complete. The applicant explained that these were not final entries in the books, and the computer entries concerned were to be completed by him upon his return from holidays. The contrary was not put to him in cross examination, and I accept what he says. Mr. Alan Anderson, a partner of Ernst & Young, and the person above whose signature the report dated 22 January 1996 (Exhibit 14) was sent, was called by the respondent to give evidence. Shortly after his evidence commenced, he was stood down, and a conference occurred between him and Mr. Chizmaysya. When Mr. Anderson was recalled to the witness box, Mr. Chizmaysya announced that "we won't be pursuing any financial documents." That was a retraction, in effect, of all of the allegations made against the applicant concerning the relevant bookkeeping entries. It follows that the respondent has not proven that, in this respect, there was a valid reason for the termination of the applicant's employment. It was also alleged that the applicant had defrauded the respondent by taking more holidays than those to which he was entitled. The applicant explained that he had taken some more holidays than those to which he was entitled, but that there was nothing secret about this, that he intended and expected to return to work, and that he would easily make up the small amount of extra holidays he had taken. It was never put to the applicant in cross-examination that he had taken the extra holidays fraudulently, and I accept what he says. In any event, this allegation of fraud did not, at the time of the termination applicant's employment, form a reason for that termination. It follows from the above that the applicant's employment was terminated in breach of section 170 DE(1) of the Workplace Relations Act 1996, and was unlawful. WAS THE APPLICANT'S EMPLOYMENT TERMINATED IN BREACH OF SECTION 170 DC OF THE ACT? Section 170 DC of the Act reads as follows: 170DC "An employer nust not terminate an employee's employment for reasons related to the employee's conduct or performance unless: (a) the emplyee has been given the opportunity to defend himself or herself against the allegations made; or (b) the employer could not reasonably be expected to give the employee that opportunity. The decision to terminate the applicant's employment was made on or before the 23 January 1996, and was communicated to the applicant by virtue of the letter dated 23 January 1996, which he collected from the Post Office upon his return a few days later. The respondent submitted that, because the applicant was invited to a meeting at Ernst & Young on 29 January 1996, during which he would have had the opportunity to respond to the allegations of the so-called "bookkeeping irregularities", that he was therefore given the opportunity to respond to the allegations, and that the requirements of 170 DC of the Act were therefore met. That argument is transparently falacious. It is patently obvious that section 170 DC(a) of the Act can only be met if the employee is given the opportunity to respond to the allegations before the decision to terminate his or her employment is made. That did not happen in this case. Section 170 DC(b) of the Act clearly does not apply in the circumstances of this case. It follows that the termination of the applicant's employment was in breach of section 170 DC of the Act, and unlawful for that reason as well. REMEDY Reinstatement The applicant has a new job, (at a significantly reduced level of income) and does not seek reinstatement. It is clear that the personal relationship between Mr. Coleman and the applicant has broken down, and that to order his reinstatement would significantly affect harmony within the workplace. For the above reasons, in the opinion of the Court, the reinstatement of the applicant would not be appropriate, and would be impracticable. Compensation The applicant's remuneration package is set out in Exhibit 5. That document is as follows: COLEMANS PRINTING PTY LTD SALARY PACKAGE BREAKDOWN PER WEEK PER MONTH PER ANNUM

The respondent argued that the "Annual Bonus" of $5,000 was a discretionary bonus, and did not, therefore form part of the applicant's remuneration package. I do not agree. In my opinion, the applicant's total salary was intended to be $60,000, and the breakdown is simply a matter of organisational convenience, from both the respondent's and the applicant's point of view. The $5,000 was not in fact a bonus at all - it was simply $5,000 which the respondent retained from the applicant's salary, as a type of compulsary saving, which was to be paid in a lump sum at the end of the year. After the termination of his employment by the respondent, the applicant obtained some casual employment for six days, during which he earned $485.00 gross. On 2 April 1996, he commenced full-time employment on what was, initially, a remuneration package of $30,000 per anumn. Since 2 July 1996 (following the end of a 3 months probation period) his remuneration has been $30,000 per annum salary, plus a $5,000 car allowance. It is not necessary to be precise about the applicant's economic loss, because it is clear that the applicant's loss to date, and his ongoing economic loss, total far in excess of the six month statutory limit set in place by the Act. The applicant lost about two months remuneration in February and March, a total of about $10,000. In April, May and June he earned at the rate of only $30,000 per annum, a total of $7,500, instead of at the rate of $60,000 per annum, which would have been a total of $15,000. It follows that his loss in that period is $7,500. Since 2 July 1996, he has been earning at the rate of $2,916.66 per month, instead of $5,000 per month. His economic loss since 2 July 1996 has been $10.083.33 per month. His economic loss since the beginning of July is therefore, about $17,000, in addition to his economic loss before that date. It is likely that he will suffer an ongoing economic loss for the next few years, but it is not necessary to consider that, as his economic loss to date (about $34,500) exceeds the statutory limit. There was no valid reason for the termination of the applicant's employment. Furthermore, if the applicant had been given a proper opportunity to explain the so-called bookkeeping irregularities, he would, in a relatively short and simple manner, have been able to do just that. Instead of allowing that, the respondent acted precipitously and terminated his employment. The result of what now can be seen as the clearly unfair, and indeed, foolish and precipitous actions of Mr Coleman, is that the respondent must now bear the consequences of the unlawful termination of the applicant's employment, a termination for which, in no way, can the applicant be blamed. The respondent will be ordered to pay $30,000 in compensation for the unlawful termination of the applicant's employment. That is the maximum amount permitted by section 170 EE of the Act, and falls well short of the actual loss caused to the applicant. THE APPLICANT'S CLAIM IN THE ASSOCIATED JURISDICTION OF THE COURT, FOR 4 WEEKS PAY IN LIEU OF NOTICE. In an amended application, which was amended pursuant to leave granted by Judicial Registrar Blokland on 22 April 1996, the applicant claimed 4 weeks pay in lieu of notice, in the sum of $2,784.64. Exhibit 4, the document dated 4 September 1995 setting out the terms and conditions of the applicant's employment, referred to "termination of employment" as follows: "Termination of employment shall be by notice of four weeks by either party to this Agreement......" The applicant is entitled to damages in breach of contract, for the respondent's admitted failure to pay any pay in lieu of notice. Dividing $60,000 by 52, and multiplying the resulting figure by four, one reaches the sum of $4,615.38. However, as the applicant has only claimed $2,784.64 in breach of contract, and as his pleadings go no further, that is all he is entitled to. The Court will therefore order that the respondent pay the applicant the sum of $2,784.64 as damages for breach of contract, for failure to give four weeks pay in lieu of notice. THE APPLICANT'S CLAIM IN BREACH OF CONTRACT IN THE ASSOCIATED JURISDICTION OF THE COURT, FOR UNPAID "BONUS." By way of the amended application, the applicant asserts that it was agreed between the applicant and the respondent that the sum of $5,000 per year would be held back by the respondent and paid to him annually at the completion of each year. The applicant claims one half of that amount on the basis of six months service. There was no dispute that Exhibit 5 accurately set out the applicant's "salary package breakdown". There was no dispute that the applicant was not paid any of the "annual bonus" of $5,000 prior to the termination of his employment. The applicant received a letter dated 23 January 1996 on 27 January 1996, exactly six months after he commenced employment with the respondent. It follows that the applicant is entitled to be paid half of the "bonus". Accordingly, the Court will order the respondent to pay the applicant $2,500 for that unpaid bonus in breach of contract. I should add here, for the sake of completeness, that the $5000 was not, in fact, a "bonus" at all. The withholding of the $5,000 was a device whereby the applicant would, in a way, compulsorily save $5,000 per annum, instead of being paid that $5,000 in dribs and drabs throughout the year, as part of his normal salary payments. THE RESPONDENT'S AMENDED CROSS-CLAIM The respondent has filed and served an amended cross-claim. At first glance, it was obvious that many of the matters claimed in that cross-claim would never be established. Many of them amounted to witnesses' expenses. One of the claims was for the salary of an internal accountant, employed I presume, to take over the applicant's position. With the exception of an alleged annual leave overpayment, which the applicant admitted, all of the items in the amended cross claim were not proven. The applicant admitted, however, that he owed the respondent $816.93 for two days annual leave. That part of the respondent's cross-claim will therefore be allowed, and will be set off against the amount the respondent will be ordered to pay as damages for its breach of the contract of employment. COSTS Section 170 EHA of the Act reads as follows: 170EHA(1)] "If, in relation to a matter referred to the Court under section 170ED, the Court is satisfied that a party to the proceeding has caused any other party to the proceeding to incur costs because of an unreasonable act or omission of the first-mentioned party in connection with the conduct of the proceeding following the referral, the Court may order the first-mentioned party to pay all or part of the costs incurred by that other party." 170EHA(2) "This power is in addition to, and not in derogation from, any other power of the Court to award costs." 170EHA(3) "In this section "costs" includes all legal and professional costs and disbursements and expenses of witnesses." A great deal of time was wasted at the beginning of the hearing of this matter due to the respondent's failure to provide proper discovery and inspection of documents. Furthermore, a considerable part of the time of the case was taken up with cross-examination of the applicant on the question of the so called "bookkeeping irregularities" allegations which were subsequently abandoned by the respondent. I indicated, at the conclusion of the evidence, that after I had delivered the substantive judgment in the matter, I would allow the parties to make submissions on costs. A letter was received by the District Registrar from Mr. Chizmaysya in respect of this matter, based on the misunderstanding, it appears, that an order was made for submissions on the question of costs. No such order has yet been made. A timetable for the filing and serving of written submissions on costs, will therefore, be part of the Court's orders. ORDERS

The respondent is to pay the applicant, within 21 days of today, as compensation for the unlawful termination of his employment, the sum of $30,000 (gross)
The respondent is to pay the applicant, within 21 days of today, as damages for breach of contract, the sum of $4,467.71.
Any monies paid by the respondent to the Commissioner of Taxation, within 21 days of today, in respect of the sums in orders 1 and 2, are to be regarded as having been paid in pro tanto satisfaction of the judgment debt. 4 A timetable for the filing and serving of written submissions on the question of costs is set as follows: (a) The applicant's submissions are to be filed and served within 14 days of today; (b) The respondent's submissions are to be filed and served within a further 7 days; (c) Any submissions by the applicant in reply are to be filed and served within a further 7 days.

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Judgment (12 paragraphs)

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